CGMA REPORT

BUILDING RESILIENCE
An introduction to business models

Two of the worlds most prestigious accounting bodies, AICPA and CIMA, have formed a joint venture to establish the Chartered Global Management Accountant (CGMA ) designation to elevate and build recognition of the profession of management accounting. This international designation recognises the most talented and committed management accountants with the discipline and skill to drive strong business performance. CGMA designation holders are either CPAs with qualifying management accounting experience or associate or fellow members of the Chartered Institute of Management Accountants.

CONtENtS

Introduction What is a business model? What creates and drives value in your business? Innovative business models When business models go wrong Toughen up your business model The management accountants role

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INtRODUctiON
Every business starts with a business model.
Whether the founder articulates a formal model or improvises along the way, a fundamental concept of inputs, processes or activities, outputs and outcomes underpins the belief that prots are at hand. Even a childs lemonade stand from bygone days required lemons, water, and sugar, xed assets including a pitcher and a table, and maybe even angel investors (the parents). Activities included mixing the ingredients and marketing. The output was a cooling summer beverage, andif successfulthe outcomes included satised customers and additional pocket money. Poorly structured business models can also be the end of a commercial venture. The model can be awed from the start or lack the exibility to adapt to a changing environment. Lemonade doesnt sell well in the arctic or as winter approaches. Even before the term business model came into vogue, businesses have been based on an idea, by whatever name, of how value is created and delivered. The term itself rose to prominence at the end of the 1990s during the internet boom and has become a well-established concept in strategic thinking. Indeed, there has been an explosion in the number of papers published and an abundance of conference sessions and panels on the subject. 1 Understanding how business models work and how they create value for a company is vital for any manager and is essential in the higher echelons. Todays commercial environment is characterised by rapid change. New technologies are introduced, customer behaviours and desires shift, supply and distribution chains mutate, and the inuence of stakeholder groups rises and falls all at speeds unprecedented in economic history. In this report, we examine how business models function and the factors that contribute to their success and failure. In the rst chapter What is a business model?we provide a framework of the basic elements of a business model. What creates and drives value in a business? takes a closer look at how the human factor and intellectual capital can contribute enormous value. The third, Innovative business models, explores how some companies have reached beyond the traditional template to create business models better suited to the times. The fourth chapter, When business models go wrong, presents case examples that illustrate critical failures in business models, including some that once supported decades of corporate success. Toughen up your business model, suggests a series of measures that can help build resilience into business models and provide early warnings when models are foundering. And we end with The management accountants role, illustrating how nancial professionals can become intricately involved in guiding the success of their companies business models. Management accountants can better serve their corporations and provide additional value by understanding more clearly the connection between the business model and commercial success. Next to the CEO, management accountants often have the most holistic perspective of a corporations operations. Unlike other specialists with a focused view on, say, research and development or marketing, nancial professionalsespecially at senior levelsgather inputs from throughout an organisation to create an overview of corporate health. This stream of information can often hold the rst signs of business model stress or indications of superior performance. Management accountants contribute skills and capabilities beyond straightforward nancial expertise. They bring to the conversation a deeper understanding of corporate strategy, risk analysis, and economic forecasting, among other aspects of corporate performance. Combined, these qualities create managers who can not only identify fault lines in business models, but can also propose solutions and bring the credibility necessary for their voices to be heard.

BUILDING RESILIENCE An introduction to business models

WHat iS a BUSiNESS mODEL?

On its face, What is a business model? is a simple question but there is no easy answer. The term, while the focus of daily press coverage and boardroom debate, has never had a common definition. While some see it through the lens of strategy and competitive advantage, others apply a more encompassing perspective, defining it as the overall impact of a business on its environment.
While the debate has left room for uncertainty, this much is clear: the business model matters. And, more precisely, understanding what makes your business model sustainable matters even more in todays environment where traditional products, services and delivery channels can be rendered obsolete almost overnight. Organisations need to be resilient and adaptive. How will your business react to variation in the quality and availability of key inputs? This responsiveness to change is a key element of an effective and sustainable business model. As a concept, the business model is often confused with business strategy. In 2011, writing for the Harvard Business Review, business professors Ramon Casadesus-Masanell and Joan E. Ricart sought to differentiate the two. 2 They wrote that a business model is:
the logic of the company how it operates and creates and captures value for stakeholders in a competitive marketplace. That definition implies that the enterprise has made a choice about how it wishes to compete in the marketplace. The system of choices and consequences is a reflection of the strategy, but it isnt the strategy; its the business model. Strategy refers to the contingent plan about which business model to use.... While every organisation has a business model, not every organisation has a strategy a plan of action for contingencies that may arise.

Strategy and the business model

Strategy can be defined as the course of action, including specifying the resources that are required, that an organisation follows to achieve its specific objectives. In terms of the strategic planning process, the business model is informed by the strategy, vision and mission statements of the organisation: Vision statements are future oriented and describe the desired or ideal state of the organisation or enterprise, answering the question Where do we want to be? Mission statements describe the fundamental purpose of the organisation, why it exists and what it is trying to do to achieve its vision, answering the question What do we do? The business model then addresses the issue of How do we create value? Understanding these key areas help organisations build a framework to formulate strategy; answering the question How are we going to get to where we want to be? A change in desired strategy may necessitate changes to the business model.

A background paper to support the work of the International Integrated Reporting Councils (IIRC) development of an Integrated Reporting (<IR>) framework, attempted to reconcile the various ways in which the term business model is used and aimed to reach a common, widely accepted denition of the business model for use in, and beyond, Integrated Reporting. 3 The work of the task force found two key themes; rstly, that business models focus upon the way in which organisations seek to create and dene sustainable value, both nancial and non-nancial. Secondly, a business model provides a statement of the basic logic of the business: How we do it. The proposed denition of business model, published in March 2013, was:
The chosen system of inputs, business activities, outputs and outcomes that aims to create value over the short, medium and long term.

While this denition has been developed to support a reporting and disclosure framework, it has wider relevance in enabling organisations to better understand their business model and manage their businesses effectively. The <IR> model uses the concept of capitals to illustrate the resources and capabilities an organisation may require and utilise to create value. The relative importance of each capital to the value creation process will vary by business. However, organisations need to understand how the capitals interact with each other to create (or potentially destroy) value. A business model based on open innovation or crowd sourcing, such as those of online furniture retailer Made.com and advertising agency Ludvik + Partners, relies upon strong links between the nancial, human, intellectual, and social and relationship capitals to create sustainable value.

TABLE 1: Integrated Reporting capitals

Capital Financial Denition Examples

The pool of funds available to an organisation for use in the production of goods or the provision of services

Debt Equity Grants Funds generated through operations or investments

Manufactured

Manufactured physical objects (as distinct from natural physical objects) that are available to an organisation for use in the production of goods or the provision of services Peoples competencies, capabilities and experience, and their motivations to innovate

Buildings Equipment Infrastructure, eg roads, ports, bridges, waste and water treatment plants Support of organisational policies, strategy and culture Ethical values Loyalties and motivations for improvement

Human

BUILDING RESILIENCE An introduction to business models

Capital Intellectual

Denition

Examples

Organisational, knowledgebased intangibles

Intellectual property, eg patents, copyrights, software, rights and licences Organisational capital, eg tacit knowledge, systems, procedures and protocols Intangibles associated with brand and reputation

Natural

Renewable and non-renewable environmental stocks that provide goods and services, supporting the current and future prosperity of an organisation The institutions and relationships established within and between each community, group of stakeholders and other networks, including an ability to share information, to enhance individual and collective well-being

Air, water, land, forests and minerals Biodiversity and ecosystem health

Social and relationship

Shared norms, common values and behaviours Key relationships with stakeholders An organisations social licence to operate

Taking these six elements into account will help organisations take a broader view of the concept of value creation and consider the positive and negative impacts of business operations in a wider context (Table 1). Business models create value through the conversion of resources and capabilities, the availability and appeal of which may change over time. In 2012, John Chambers, Chairman and CEO of Cisco Systems, announced plans to move away from Ciscos traditional focus on the design and manufacture of hardware to a more lucrative and sustainable software and services approach. In the context of the <IR> model, this would represent a shift in relative importance from manufactured to intellectual capital, recognised by Ciscos recent acquisition of software developers such as NDS Group.

Failure to consider the material impact business activities have on all capitals carries the potential for disaster. Issues related to natural capital are a prime example of this and not only for the obvious industries such as shing or extraction. In early 2011, the global sportswear brand, PUMA, became the rst major multinational to issue an environmental prot and loss account, seeking to place a monetary value on the impact of the greenhouse gas emissions and water consumption of their business and supply chain, from raw material to sale of the nished product.4 The environmental impact relating to these two areas was valued at 94.4m, Putting this into context, PUMAs net earnings that year were 202m. The <IR> framework shows the business model as a process for converting inputs to outputs through business activities (Figure 1). These may include product planning, design and manufacture, or the deployment of specialised skills and knowledge in the provision of services.

FIGURE 1: Creating value through business activity

External environment
Financial Manufactured Intellectual

Mission and vision

G o v e rn a n c e

Financial Manufactured

Opportunities and risks

Strategy and resource allocation

Intellectual

Business model
Society Organisation
Inputs

Society Organisation

Business activities

Outputs

Outcomes

Human Social and relationship Natural

Human

Performance

Future outlook

Social and relationship Natural

<IR> framework showing the business model at the heart of the organisation IIRC 2013

Understanding how value is created is a key element of the business model. When thinking strategically about their business activities and the relevance of their business models, organisations need to consider the following:

The net result: positive or negative?

Within the <IR> framework a clear distinction is made between outputs and outcomes. Outputs are key products or services produced by an organisation to create value as well as the waste or other by-products that may either create or erode value. Outcomes, on the other hand, are the internal and external consequences for the capitals as a result of an organisations business activities and outputs, including customer satisfaction, prot (or loss), shareholder return and contribution to the local economy through taxes. In the case of a car manufacturer, the output is the car, while the outcomes to the consumer may be mobility, safety, reliability, comfort and status. Outcomes that ow beyond the customer include environmental impacts arising from emissions. 5 Regular reassessment of desired outcomes against actual performance, outputs and strategic objectives may prompt adjustments and changes to the business model. In this uncertain world, management accountants have a key role to play in ensuring their organisations business model remains relevant, resilient and responsive.

How are initiatives inuencing the effectiveness

and efciency of business activities, such as process improvements, employee training and relationship management, contributing to long term success?

How does your organisation differentiate itself

in the marketplace? Would a change in business model mean a gain in competitive advantage?

How does your business model generate revenue?

Can you alter it to generate further revenue after the initial point of sale, perhaps through extended warranties? Business activities extend beyond the generation and sale of a product or service. Culture plays an important role. A culture of innovation can be a key business activity in terms of generating new products and services that anticipate customer demand, introducing efciencies and better use of technology, or substituting inputs to minimise adverse social or environmental impacts.

BUILDING RESILIENCE An introduction to business models

WHat creates aND DriVes VaLUe iN YoUr BUsiNess?

Many companies have found that adapting their business models can lead to improved performance and competitive advantage. For example, some companies are choosing to eliminate the non-value-adding aspects of their business and passing the value-creation decision back to the customer, creating new revenue streams in the process.
No-frills airlines like Easyjet and Ryanair have been using this approach for many years, where customers may purchase their seat at a competitive price, but if they want optional extras such as refreshments, extra legroom, or additional baggage allowance, they must pay extra. Even the legacy carriers have seen the appeal of this model, with many now charging for refreshments. However, now, by not following the herd, airlines that do not charge bag fees stand out. Southwest Airlines Bags Fly Free policy turned what was once a common practice into a registered trademark. The upselling concept may continue when you arrive at your destination. All-inclusive beach resorts in remote locations charge bored holidaymakers for off-site excursions or offer the option to eat at an la carte restaurant rather than the communal buffet, each for additional fees. Flat-pack furniture businesses such as IKEA have outsourced non-value-adding activities such as construction and delivery to the customer. Assembly and home delivery services are still available, but at a premium. These approaches have worked well for airlines and manufacturers, but what of those businesses which rely upon less easily measurable assets as a source of competitive advantage?
Overwhelmingly, more value is coming from people rather than financial and physical assets. The most significant forces shaping the future business agenda for organisations customers and employees are also grounded in the human dimension.  Rebooting Business: Valuing the Human Dimension, CGMA, 2012

The CGMA report, Rebooting Business: Valuing the Human Dimension, found that 81% of CEOs believe knowledge and human capital contribute signicantly to the overall value of the business. The ndings also showed that these factors, together with customer relationships, were considered to be the two highest providers of value to the business, scoring higher than nancial and manufacturing assets. Clearly, non-nancial elements have become crucial to driving value and, if managed well, long-term sustainable business success. Has your organisation unlocked and maximised the value of its human and intellectual capital? To illustrate further, we looked at the ways different organisations have recognised and leveraged these key inputs to their business model.

Driving value: the human factor

The British entrepreneur Richard Branson wrote, A companys employees are its greatest asset, particularly in service-based operations where your people are your product.6 This view is reected throughout Virgin Group companies. At Virgin Trains it has been recognised that employees are the key to identifying customer-focused improvements. The Virgin way of working encourages employees to interact with customers to improve the customer experience and understand customer needs. This friendly face approach has a higher strategic purpose. Employee empowerment allows staff to feed their insights into decision-making processes, which, in turn, increase the employees feelings of value to the company. Virgin Medias vision for its employees to create a place where people love to work, and a community of people who feel inspired to deliver a brilliant customer experience7 - is supported by a cloud-based e-learning and performance management system, linked directly to career development. Branson has said one of the secrets of Virgin Groups success, including an innovative expansion into space and ocean tourism, is to recognise the value of its staff and to create a culture of empowerment. This creates additional value by giving employees the same freedoms that the senior managers and I give ourselves. Our team can successfully take on projects that other brands cant.8 On a smaller scale, the sandwich chain Prt a Manger, which operates 320 stores in France, Hong Kong, the United Kingdom and the United States, recognises the importance of staff buy-in to creating and driving value through freshly-made quality products and a positive customer experience. Prt is a private company determined never to forget that our wonderful hardworking people make all the difference. They are our heart and soul. When they care, our business is sound. If they stop caring, our business goes down the drain. 9 With the people element so fundamental to their business model, Prt goes to great lengths to employ the right people to join their in-store teams. Applicants are assessed against three core behaviours Passion, Clear Talking and Team

Working - before working a paid shift in one of the Prt stores. Existing staff vote on whether new applicants should stay, helping to ensure new members are a good t with the existing team. Regular mystery shopper visits are made to each store to ensure that core behaviours are upheld, for which the entire team are rewarded, and staff who are promoted or pass training milestones are given rewards to pass on to the teammates who helped them. While Prts approach to developing an enthusiastic and cheerful workforce who clearly demonstrate personality (unusual for the fast food industry) has been criticised by some as enforced happiness, it is clearly successful, with prots of more than 61m in 2012 and plans to open a further 50 stores in 2013. Value can also be created through developing strong customer relationships, a challenge which has been taken up by internet retailers such as Amazon.com and Asos.com, which lack the personal interface advantage of high street stores like Prt a Manger.

...Our energy at Amazon comes from the desire to impress customers rather than the zeal to best competitors. We dont take a view on which of these approaches is more likely to maximise business success. There are pros and cons to both and many examples of highly successful competitor focused companies. We do work to pay attention to competitors and be inspired by them, but it is a fact that the customercentric way is at this point a defining element of our culture.10  Jeff Bezos, founder and CEO of Amazon, Annual Letter to Shareholders, April 2013

Amazons customer relationship focus has led to the development of automated services, such as book and lm recommendations based buying and browsing patterns. Customers have the facility to look and search inside books that they are interested in and are encouraged to contribute to the sites body of knowledge by writing product reviews, which other customers are then able to rate or comment upon. In this way, customers begin to create value for each other.

BUILDING RESILIENCE An introduction to business models

Continual improvement of the customer experience continues beyond the online interface, with Amazon currently building capability for a same-day delivery service. This customer-focused approach, combined with technology, competitive pricing and a huge range of products, has enabled Amazon to become the worlds largest online retailer. Organisations may also choose to leverage other aspects of human capital to create value. Examples of this include people development, including succession planning, talent management, open innovation and collaborative relationships with customers and suppliers.

exclusive luxury lifestyle market, appealing to new fashion-forward customers, as well as the traditional base. A agship store opened on Londons New Bond Street, adjacent to leading fashion brands such as Versace, Chanel and Prada, and advertising campaigns featured top models such as Kate Moss. By understanding and leveraging the value of its uniquely British brand, Burberry was able to rescue its 157-year-old business from stagnation. Today, it follows a one company, one brand philosophy, earning revenue through the retail, wholesale and licensing of clothing, accessories, fragrance and beauty products. Adjusted operating prot in 2012 was 377m, a 25% increase on the previous year. High-end fashion labels such as Burberry are able to exercise strong controls over their manufactured products and to maintain quality and brand integrity. However, for some businesses, particularly in the technology sector, no physical product exists. They focus instead upon the development of intangible assets. The FTSE 100-listed semiconductor and software design company ARM Holdings operate a collaborative business model in which the product is intellectual property (IP) and the monetary value is created through licensing this product to manufacturers. Royalties then provide an additional revenue stream.

Driving value through intellectual capital

Intellectual capital is dened in this report as organisational, knowledge-based intangibles, including intellectual property such as patents, copyrights, software, rights and licences; organisational capital, such as tacit knowledge, systems, procedures and protocols; and intangibles associated with the brand and reputation that an organisation has developed. Different types of organisations place higher values upon specic types of intellectual capital. A consumer goods company, for example, may consider their brand critical to value creation, while a software development company will have an intellectual property focus. The luxury fashion company Burberry, designers of the original trench coat during the First World War, had failing fortunes during the late 1990s. Poor distribution and licensing strategies meant that products of inconsistent quality were being sold in inappropriate retail outlets, leading to a loss of cachet. Counterfeiting added to the devaluation of the brand, while reliance on a small, conservative product range brought a moribund image. In 1997, Burberry embarked upon a radical realignment of its business model, strengthening controls over management and distribution and expanding the product portfolio. Crucially, this included a repositioning of the brand into the

The ARM business model involves the designing and licensing of IP rather than the manufacturing and selling of actual semiconductor chips. We license IP to a network of over 2,500 partners, which includes the worlds leading semiconductor and systems companies. These partners utilise ARM IP designs to create and manufacture system-on-chip designs, paying ARM a license fee for the original IP and a royalty on every chip or wafer produced. In addition to processor IP, we provide a range of tools, physical and systems IP to enable optimised system-on-chip designs. ARM company prole

By focusing on research and development rather than manufacturing, ARM is able to offer signicant savings, which are estimated at around $20bn industrywide, by licensing the result of their R&D efforts to semiconductor companies, who then design smart, low-energy chips. Ultimately, this brings down the cost of digital electronics to the end user. ARMs product is used in a wide variety of electronic applications, from mobile handsets and digital set-top boxes to car braking systems and network routers. Chips using its technology are used in 95% of smart phones, 80% of digital cameras, and 35% of all electronic devices. Prot from operations in 2011 was 148.9m and in 2012, 208.1m, highlighting the growth in consumer gadgets.

People: the critical success factor?

It is important to realise that a business model which centres on the creation of value through intellectual capital, such as IP, patents or software, cannot afford to take one specic aspect in isolation. Organisations must also recognise the value, both present and future, of their people and that their competitors may have an eye on their biggest assets. ARMs people strategy demonstrates this recognition, aiming to provide an engaging environment for ARM employees where they can fully develop personal and collective potential better than elsewhere. It can be argued that the human dimension in itself is the critical success factor of the business model. To return to the Rebooting Business report: One thing we can be sure of in this uncertain world is that people their ideas and relationships will be more important than ever before.

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BUILDING RESILIENCE An introduction to business models

INNOVatiVE BUSiNESS mODELS

Business models function in a dynamic environment, and the models themselves must change and adapt to deliver continued success. New models are emerging, and a review of the innovations being explored can prompt a reinvigorated perspective of business models that position these models as an integral part of strategic planning.
A number of key drivers are making new business models possible, including primarily:

Internet platform models

The internet has spawned many new business model possibilities based on:

Global economic integration. New technologies. Greater (and faster) connectivity.

For example, Harvard Professor Clayton Christensen established in his work on The Innovators Dilemma and The Innovators Solution that it was not necessarily technology that upended companies such as Wang and Kodak, but the new business models embraced by their new competitors. Technology alone is rarely the key to unlocking economic value since companies create real wealth when they combine technology with new ways of doing business.12 However, it is important to be aware that business model change is subject to many other drivers and new inuences are constantly emerging. Further examples are:

Customers as product-makers. For example,

Facebook relies on user-generated content in which users create their own experiences. Apple invented the iPod and iPad, but users here also create their own experiences by loading their products with content. Co-creation of products is not a choice but a necessity for many business models because the product choices are innite and cannot be conceptualised or delivered by a single producer.14

A changing price-cost-product interface. For

example, consumers do not pay for the product, and revenues are generated from other sources such as advertising. Many free smart phone applications work on this model.

Peer-to-peer consumption. This approach is

a renement of the traditional cut out the middleman model, for example where owners can rent their assets, such as holiday homes, directly to individuals. But how do such innovative business models make money? An important concept here is stickiness, which is the notion of strong customer engagement and experience driving users to a site. Some of the challenges of this approach are exemplied by Facebook and Google, which both use advertisingsupported business models. The primary challenge is that the advertising itself can spoil the customer experience. Users may become concerned about data privacy and turned off by the advertising. It is important to ensure that the advertising is targeted effectively by matching

The impact of an ageing population. Democratisation of innovation, where greater

consumer access to technology is spurring development.

Regulation, deregulation, or both. Environmental resource constraints.

Systematic scanning of the horizon, for example through political, economic, social, technology analysis,13 can help to identify the key drivers and how changes in each area can impact the business model should be assessed. Internet platforms, hybrids, marketing-driven, modular and category creator models are some examples of business model innovation.

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preferences with sellers. Googles business has been based around the combination of a search product and a keyword advertising model and it is argued that advertising is more effective when users have purchasing intent, which is more likely when using a search function than social networking. Peer-to-peer businesses are emerging models which build on the internets capacity to facilitate connectivity. For example, car owners who do not need to use their vehicle all the time can rent it out through rms such as Buzzcar or Getaround. And if they have free time, they could also earn extra income by offering a taxi service. There are also examples of accommodation being rented out in this way, and the model can be extended to other items such as expensive gardening and DIY equipment. In essence, the concepts of ownership and rental are being reframed, and incumbents in the car market such as Avis and GM are investing in this area. Avis, for example, paid $491m in January 2013 to acquire the hourly rental rm ZipCar.15 A further example is Freemium, in which a basic product or service is offered free of charge and a fee is based on the added-value premium product, a common approach with software where the manufacturing costs are low. Examples are LinkedIn, Skype and childrens game networks such as Club Penguin. By offering the basic service free, a large customer base can be built quickly. Another interesting variant on the premium pricing model is Amazon Prime, where subscribers pay an annual subscription fee$79 in the United States and 49 in the United Kingdomfor unlimited 1- or 2-day shipping. Subscribers have doubled their annual spending at Amazon because they start buying items that they would have normally bought elsewhere and they want to get as much value as possible from their Prime subscription.16 A recent McKinsey & Company article argued that software has become so important for every organisations performance that any organisation can turn to software companies for lessons in terms of how they have built new business models. It cited examples including Freemium to illustrate how new revenue streams have been created through the integration of software into products. A further

example is Nike+ sensor, which is compatible with Apple iOS devices, and allows runners to track mileage and upload data to a web site.17

Hybrid bricks-and-clicks models

In internet and software-driven business models, the links between revenue and costs are often disconnected, but in the retail industry the costand-pricing model has remained conventional: the consumer pays for the product purchased and used. Even under such a conventional linkage, however, business models have evolved in the face of new choices in delivery channels. In the early years of the internet, the idea formed that all shopping could move online. The reality that unfolded has been more nuanced, creating room for the bricks and clicks or multi-channel model in which retailers combine the best of both environments to address the different needs and preferences of consumers, depending on what and when they are buying. For example, the successful UK clothes retailer, Next, combines high street sites where it can showcase its latest lines together with the Next Directory catalogue, which carries a much larger range, including furniture and houseware, that can be delivered to residences or retail outlets. Apple and Staples are also successful bricks-and-clicks retailers. Similarly, supermarkets such as Tesco and Walmart are combining large out-of-the-way sites and internet ordering with home delivery and small, convenient stores in city centre locations to reect changing shopping patterns.

Marketing-driven business models

Marketing-driven business models are ones built around a very strong brand with the core product or service almost an incidental added bonus. Such organisations commonly outsource all manufacturing and logistics activities. Drink maker Red Bull, for example, has been called just a media company who happen to sell energy drinks?18 The drink brand is built around the development of its own media content and activities, especially in the eld of extreme sports. Examples of its efforts include lms featuring snowboarding and skydiving from near-space, together with prominent

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BUILDING RESILIENCE An introduction to business models

sports sponsorships such as Formula 1. Red Bulls investment in marketing stands at 30-40% of revenues, but it is the strong brand awareness that has allowed Red Bull to charge premium prices for its energy drinks.

successful category creation examples are when breakthrough products are combined with a new business models. For instance, the Microsoft Xbox Live gaming system combines a traditional video game with a subscription-based online service. While category creation is one of the most effective ways for organisations to achieve growth, large companies hesitate when faced with category creation opportunities, believing, for example, that start-ups are better at such innovation or that customers might not be receptive to trying new things. 23

Modular or standardised business models

Another useful model is the modular business model where companies standardise core aspects of their activity to provide other benets, such as cost savings. Low-cost airlines, for example, might operate exclusively with just one aircraft model to make maintenance more efcient. Southwest Airlines runs a eet of Boeing 737s to gain such advantages.19 Volkswagen is another example. The German carmaker has been better than its rivals at reducing the number of common platforms for its line of automobiles. The measure has helped it offer a large variety of brands and styles, while slashing manufacturing costs. 20 A more recent variant of this exible approach is localised modularisation. Chinese motorcycle manufacturers, such as Longxin and Zongshen, needed a simpler, more exible model because, unlike competitors like Honda, they did not have major foreign partners with substantial resources. As part of the solution, rather than specifying every detail of the parts they needed from suppliers, they specify only the essentials such as size and weight. The approach has delivered cost savings and quality improvements. 21 Such tactics and others have enabled new entrants into the market, but can also help established companies consider whether their own processes could be modied to capture cost benets.

Facing the challenge of innovation

Change is often difcult. The same inertia that keeps a stone steady unless a force is applied can immobilise a company. A rst step could be to reect on a series of questions:

How does your organisations business

model work?

How could it be modied to create

additional value?

How could a new entrant disrupt the model? Where are the points of vulnerability?
If the answers suggest a new business model could bring benets, management accountants can play a valuable role in testing the waters and helping to break the inertia. For example, they can re-examine the companys approach towards costing and pricing in cases when, for instance, revenue sources are separated from product costs or producers and consumers are indistinguishable. Such a disconnect implies altered cost objects and altered cost management objectives. Rather than following a traditional model of pricing, which may be cost-plus based or market based, pricing may have to tie into the strategy of the rm along different parameters. Such trends suggest management accountants will need a broader vision of their role to thrive in more complex organisational contexts, such as a move towards greater business partnering and a greater involvement in decision making and strategic implementation. 24

Category creator business models

Some innovative business models may involve creating a new class of products that can be sold using traditional methods. For example, Under Armour used new synthetic fabrics to invent a new category of sports clothing. However, according to a recent Harvard Business Review article, 22 the most

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Multi-channel retail strategies or marketingdriven approaches would require management accountants to entertain a revised approach to cost allocation and protability analysis. As business models become more innovative, it may become more difcult to identify the sources of revenue. Management accountants must work closely with their nancial accounting colleagues to ensure that internal metrics continue to be aligned with external accounting requirements, particularly when the latter are subject to change as is currently the case with revenue recognition. 25 As weve asserted in earlier reports, management accountants have a key role to play on initiating, partnering and providing constructive challenges to the innovation process. 26

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BUILDING RESILIENCE An introduction to business models

WHEN BUSiNESS mODELS gO wRONg

On screen or on paper, all business models look rock solid and built for success. But unleashed into the real world, these models are buffeted by exogenous and endogenous forces that can cripple or even completely undermine a company.
Many models fail immediately. Business parks and cyberspace are littered with companies that shut down within a few years or hobble along without covering initial investments. The carnage includes not just small businesses, but also efforts backed by serious money. In 2012, Harvard Business School senior lecturer Shikhar Ghosh looked at more than 2,000 start-ups in the United States that generally received $1m or more in venture capital funds and found that about three quarters failed to cover initial investments and, indeed, about a third shut down entirely. 27 At the same time, business models that have been successful at times stunningly so can collapse, often catching investors and managers by surprise. In their ground-breaking 2001 book, Creative Destruction , authors Richard Foster and Sarah Kaplan reported that of the companies listed in the original 1957 S&P 500, only 74 were still on the list 40 years later (and the vast majority of these survivors had underperformed the index over the course of those four decades). 28 In his blog, Carpe Diem , University of Michigan economic professor Mark Perry noted that of the Fortune 500 companies in 1955, only 67 were still on list in 2011. 29 Among those dropped were American Motors, Detroit Steel and Maytag. He wrote: Almost 87% of the companies have either gone bankrupt, merged, gone private, or still exist but have fallen from the top Fortune 500 companies. Most of the companies on the list in 1955 are unrecognisable, forgotten companies today. Thats a lot of churning and creative destruction, and its probably safe to say that many of todays Fortune 500 companies will be replaced by new companies in new industries over the next 56 years. While strategies that misre can cripple companies, often the culprit is the business model. How do business models especially those with some track record run afoul?

Five forces
Michael Porters ve forces analysis offers some clues. In late 1979, Porter, then an associate professor at Harvard Business School (and now one of the premiere business management experts), published his framework describing the ve factors that weigh upon a companys performance (Figure 2). 30 While some modern critics suggest the framework is too simple for todays complex web of industry relations, the ve forces analysis remains an essential tool for understanding how companies prosper or whither. FigURE 2: Michael Porters five forces framework
Threat of new entrants

Bargaining power of suppliers

The industry (jockeying for position among current competitors)

Bargaining power of customers

Threat of substitute products/ services

15

The intensity of these forces varies across industries, but they are each present when a company is founded and change constantly over the years. A business model that overlooks any of them or takes the benevolence of any for granted could face severe challenges. Groupon, an internet wonder that went public with much fanfare in November 2011, was brought to its knees after being buffeted from all sides by these forces. Groupon, founded in Chicago in 2008, offered daily deals for products or services that were valid only if a minimum number of coupons for the deal were sold. Groupon took half the purchase price as a commission, with the remainder going to the merchant. It was a sensation, and within two years Groupon had spread globally and boasted of tens of millions of registered users. Internet giants took note, and in 2010 Groupon rejected a $6bn buyout bid by Google. A year later, the company went public with a debut price of $20 a share for a valuation of about $13bn. Immediately, the share price jumped briey to more than $31. And then the bottom fell out. A year after the IPO, company shares were trading at about 13% their debut price, and in February 2013 co-founder Andrew Mason was ousted, leaving behind one of the most quoted executive goodbye notes: After four and a half intense and wonderful years as CEO of Groupon, Ive decided that Id like to spend more time with my family. Just kidding I was red today. If youre wondering why you havent been paying attention. Commentators have pointed to several factors contributing to Groupons straits, many linked directly to its business model. 31 Customers, for example, had little incentive to be loyal to the merchants who were offering coupons and most were satised just taking the one-off discounts. At the same time, merchants received little benet from their discounted offers because revenues were shared with Groupon and sales didnt necessarily bring repeat business at full prices. And nally, the model was easily copied, leading to dozens of imitators. At least three of Porters ve factors were working against Groupon.

More importantly, even ahead of the IPO, some analysts were sounding warning about the companys model, but few were listening. Weeks ahead of the public offering, The Associated Press quoted Sucharita Mulpuru, a Forrester Research analyst, saying, Groupon is a disaster Its a shill thats going to be exposed pretty soon.32 The article summarised: Now Groupon faces concerns about the viability of its daily deals business model. The novelty of online coupons is wearing off. Some merchants are complaining that they are losing money and customers on the deals. And competitors are swarming the marketplace.

Caught in the crosshairs

Companies with much longer histories than Groupon can nd their business models outdated and unable to generate prot if they arent continually vigilant to market changes. After more than a century, Eastman Kodak, the US photography company, led for bankruptcy protection in 2012, hobbled irreparably by the advent of digital photography, which ironically Kodak had helped pioneer. Kodak was founded in 1888, and by the late 1970s the company was supplying 90% of the photographic lm sold in the United States and 85% of the cameras. 33 Innovation had always been a strategic priority for the company, and indeed the digital camera was invented by a Kodak engineer in 1975. But in its last decades, the company could not turn ideas into cash and was eventually overcome as lm and snapshot cameras became more and more obsolete. More than anything, the company was afraid to risk its highly protable lm business by embracing the new age of digital photography, a former R&D leader at Kodak, David Glocker, told the Wharton School of Business. 34 He explained: I believe the single biggest mistake that Kodak made for two decades or more was the fear of introducing technologies that would disrupt the lm business. There were excellent scientists and engineers who generated some of the worlds leading innovations. The company, however, was

16

BUILDING RESILIENCE An introduction to business models

almost never willing to risk the high lm margins by introducing them. The irony is that many CCD arrays, digital X-rays, etc eventually did Kodak in. The 2008 collapse of British retailing giant Woolworths Group is widely seen as collateral damage from the global nancial crisis: Almost 100 years old, Woolies, as it was known locally, was a victim of an exogenous disruption that was, for the most part, outside its control. But why Woolworths and not other global retailing giants like Walmart, Carrefour or Tesco or even the Woolworths Ltd., which remains the largest retail chain in Australia and New Zealand? Woolworths collapse was one of the dening events of the credit crisis, The Telegraph reported in 2009. But questions have been asked about whether Woolworths failure can purely be put down to a brutal recession.35 Jim Prior, CEO of London branding consultancy The Partners, concluded that Woolworths failure to keep up to date with its rivals on High Street and elsewhere played a critical role in the companys downfall. 36 Despite the national anguish over its closing, Woolworths was a relic of a bygone age, he wrote, explaining: It has big stores with tightly packed aisles of seemingly randomly merchandised, cheap-priced goods. No clear sense of what the store stocks, or why. It is a soulless experience reected in a nave brand identity and bland interior design that have clearly not been invested in for decades. Woolworths hasnt changed in over 20 years, and it shows and this is why it has failed.

Business model innovation will be the next CEOs

problem: The urgency of the challenge is often underestimated.

Product is king; nothing else matters: Services

that support the product can be neglected.

Information technology is only about keeping

the trains moving and lowering costs: Legacy IT systems may be favoured over updated and more productive technologies.

Cannibalisation is off the table: Leaders may fear

harming current businesses even if new offerings have substantial potential.

Nowhere near enough connecting with unusual

suspects: Insular attitudes can keep executives isolated from new trends and ideas.

Line executives hold your pay card: Attracting

capable managers to a new project can be difcult if bosses linked to the old model control their career.

Great idea, whats the ROI? New models often

require new ways of analysing ROI that could be contrary to the current model.

They shoot business model innovators, dont

they? New models and their supporters are often disruptive and face signicant corporate inertia.

You want to experiment in the real world, are

you crazy? Stepping from white board to launch takes courage. Management accountants are uniquely positioned to watch for fault lines in a companys business model. Combining nancial expertise with critical capabilities in risk management, they can sound an early warning when forces essential to a companys success whether the arrival of new entrants, the advent of substitute products or services, changes in customer or supplier behaviours or an evolving industry environment begin to work against the companys best interests. By remaining vigilant, management accountants can be key players in bringing a company away from the abyss of failure.

Key fault lines

How are problems that seem so obvious in hindsight missed by executives in the thick of battle? For an ongoing business, a key failure is an inability to recognise or react to changes that impact a companys business model, shifts in the ve forces. Writing for The Guardian , Saul Kaplan, author of The Business Model Innovation Factory, recently suggested ten reasons companies can be blindsided: 37

CEOs dont really want a new business model:

Leaders focus on performance improvements rather than real change.

17

TOUgHEN Up YOUR BUSiNESS mODEL

Corporate success is a moving target. Customer behaviour can shift quickly. Suppliers rise and fall. Aggressive new entrants appear on the horizon, and new technologies and processes threaten established systems. Meanwhile, incumbent rivals are driving and reacting to these changes.
A business model that worked yesterday or even today could spell ruin tomorrow. Companies must continuously review their business model to ensure that they remain relevant for the current and foreseeable business environment and to make any necessary adjustments before they step onto a burning platform. Even the best business models eventually become obsolete, the management consultancy Deloitte wrote in a recent report. 38 Yet we have found that companies are often reluctant to tinker with something so crucial to their business particularly if it has served them well in the past. Looking at two peer-to-peer web businesses companies that connect individual sellers to individual buyers illustrates how vigilance and change can help safeguard a company. Backed by venture capital, the car-sharing club HiGear.com was founded in 2011 to bring together luxury car owners with people wanting to rent a sleek ride for a day or two. Owners got value from cars that were often just sitting in garages, while renters got steep discounts from rates charged by traditional car rental companies. HiGear, with operations in San Francisco and Los Angeles and plans to expand further, closed after just a few months. In a widely distributed email, the CEO explained that a car theft ring had used false credit card information to steal four cars valued together at about $300,000. Even though insurance claims were being processed and some of cars were recovered, the email said, This incident exposed us to the worst case risks inherent in our service. Even by improving security and processes, we are not completely sure we can prevent an incident of this sort from happening again given the peer-to-peer nature of our service.39 Airbnb, another San Francisco peer-to-peer service backed by venture capital, also faced a corporate crisis that arose from overestimating the integrity of its clients. Airbnb was founded in 2008 to connect individuals seeking to rent their homes for short periods to others looking for a place to stay. In 2011 two rented apartments in San Francisco were ransacked and jewellery, electronics and other items were stolen, triggering a wave of bad publicity. Rather than raising the white ag, Airbnb responded by giving property owners using the site a $50,000 guarantee against theft and vandalism and by expanding its customer services centre. In Spring 2013, the company boasted more than 300,000 properties listed in more than 33,000 cities worldwide.40 In a corporate blog, Airbnb CEO and co-founder Brian Chesky summarised: 41 In the last few days we have had a crash course in crisis management. I hope this can be a valuable lesson to other businesses about what not to do in a time of crisis, and why you should always uphold your values and trust your instincts. We should have responded faster, communicated more sensitively, and taken more decisive action to make sure [the home owner] felt safe and secure. But we werent prepared for the crisis and we dropped the ball. Now were dealing with the consequences. As part of its risk management and damage control response Airbnb unlike HiGear made adjustments to its business model to include better protection for its clients. The company not only created a model more resilient to harmful customer behaviour, but also gained positive press for its handling of the situation.

18

BUILDING RESILIENCE An introduction to business models

Building resilience
The market environment is changing faster today than ever before, and its likely to change even faster tomorrow. From day one, business models are buffeted by these changes, and more often than not, the winds are blowing against a models success. Changes in customer attitudes, shifting supply chains, moves by competitors, new products and services, and new entrants can all impact the value generated by any business model. Generally, the value of a model erodes slowly sometimes almost imperceptibly until its too late but at times the ground shifts quickly beneath a company. A survey of more than 4,000 senior executives globally by the Economist Intelligence Unit underscored the importance top managers give to business models that adapt to changing environments. In the 2005 survey, about 55% of the respondents said they expected new business models to be a greater source of competitive advantage through 2010 than new products or services.42 The report said: The rising importance of business models is a logical reaction to too many choices in the market. For consumers and companies alike, its getting harder to distinguish between many products and services on a purely functional basis. By 2010, companies in many sectors will distinguish themselves by innovative business models be they new pricing models, a shift to selling products as services or another model that will differentiate their offering from those of global competitors. For example, more recently, a report from the IBM Institute for Business Value43 shows that cloud technology has the potential to be a major driver of business model innovation. Tinkering with a business model can be intimidating, especially if the model has brought success in the past. Overhauling a business model completely can be frightening. But company after company have discovered the dangers of trusting the status quo. Along with avoiding potential pitfalls, business model innovation can open new avenues

to success. Raphael Amit and Christoph Zott, respected authors on business strategy, explained in a MIT Sloan Management Review report: 44 Our research shows that in a highly interconnected world, especially one in which nancial resources are scarce, entrepreneurs and managers must look beyond the product and process and focus on ways to innovate their business model. A fresh business model can create and exploit opportunities for new revenue and prot streams in ways that counteract an aging model that has tied a company into a cycle of declining revenues and pressures on prot margins. The two professors suggest managers ask six critical questions as they consider changes to their business models:

What perceived needs can be satised through

the new model design?

What novel activities are needed to satisfy these

perceived needs?

How could the required activities be linked to

each other in novel ways?

Who should perform each of the activities that

are part of the business model (the company, a partner, a customer)? What novel governance arrangements could enable this structure?

How is value created through the novel business

model for each of the participants?

What revenue model ts with the companys

business model to appropriate part of the total value it helps create? Business models can be recrafted in a wide variety of ways, and the right approach depends largely on which force in the business environment are most relevant to a companys success and how they are changing. For example, customer interactions can be shifted by incorporating auctions that allow them to set their own prices, by offering lease arrangements in addition to purchases, or by bundling together related goods and services, among many other possibilities.45

19

Companies that have faced the challenge

Companies worldwide have faced the challenge of redrawing their business model and became stronger in the process. Whether spurred by a crisis, a slow trek to oblivion or perspicuous leadership, these companies have taken a hard look at their business model and future and moved forward with a new plan. Apple can be counted among these. Apple started in 1976 as a computer company, and in the 1980s pioneering buyers of home computers generally faced a choice between an Apple or an IBM and the IBM-compatible clones. Apple was driven by innovation, offering a graphical computer interface well before its competitors did, and by the early 1990s it had become one of the most protable corporations in the United States.46 Then the company went sour. Between 1995 and 1997, sales plunged 36% and the company was reporting a billion-dollar annual net loss. Shares were trading at less than half their 1980 IPO price, even after adjusting for a 1987 share split. Buffeted by a series of CEOs with differing views, part of Apples problem was misdirection on whether to compete on cost or regain its premium status, and another part was competition from the Windows operating system which was being used on IBMs and their clones. In 1997, co-founder Steve Jobs returned to the helm of Apple and helped the company rediscover its footing as a technology innovator. The Harvard Business School noted: 47 Despite a strong brand, rapid growth and high prots in the late 1980s, Apple almost went bankrupt in 1996. Then Jobs went to work, transforming Apple Computer into Apple Inc. with innovative non-PC products starting in the early 2000s. In the 2009 scal year, sales related to the iPhone and the iPod represented nearly 60% of Apples total sales of $43bn. Of course, companies dont have to face the abyss to change their business models. South Korean automobile maker Hyundai tweaked its model in response to the 2008 global nancial crisis that brought depressed demand for cars and other consumer purchases. Instead of trying to retain

business with lower prices, Hyundai allowed buyers to return their new cars within a year if they lost their jobs. While most other car makers saw sales drop in 2009, Hyundai enjoyed an 8% increase in sales. (The offer was discontinued in 2011.) 48 US bookseller Barnes & Noble had to move quickly to meet the threat posed by Amazon.com. Not only were online sales eating into revenues from traditional channels, but Amazons Kindle ebook reader, launched in 2007, was making bound volumes seem obsolete. Along with its own online presence, Barnes & Noble responded by refocusing its stores on higher margin products, like childrens books, coffee table books and gifts, launching Nook, its own ebook reader with superior technology and the possibility of trying it in a store, and improving its capabilities in branding, customer intelligence and merchandising. 2012 revenues were $7.1bn, a 35% rise from 2007, and Nook had gained a 27% share of the ebook market.49

Ready for the change

Identifying when it is time to re-evaluate or change a business model requires a keen awareness of a companys goals, strategy and competitive advantages. The management consultancy Deloitte offers a series of questions that should be asked to determine whether its time to change a companys business model. 50 Does the model:

Support your companys business strategy? Support your go-to-market strategies? Enable timely adjustments or changes in response
to market shifts such as competition and cost pressure?

Serve a key element of your companys

competitive strategy?

Provide for continuous improvement in vendor

and supplier relationships?

Help interact with customers effectively and

efciently?

Support the most efcient and effective cost

structure?

Support the companys desired culture?

20

BUILDING RESILIENCE An introduction to business models

 Take into account alternative service delivery

models such as shared services, outsourcing, and offshoring?

Help leverage processes and organizations

globally or internationally?

Support clear, effective, and efcient decision

making at different levels of the company? The consultancy advises that too many no answers may signal its time to do something different.

21

THE maNagEmENt accOUNtaNtS ROLE

The impetus to change a business model can come from any direction or from multiple directions. A siloed view of a companys operations and situation is unlikely to provide adequate insights. Management accountants, with their holistic perspective of a companys strengths and weaknesses, may be best positioned to identify when a business model should be revisited. Untangling the root causes of subtle shifts in the financials and spotting changes in risk exposure can be invaluable to identify when the seas have changed.
In addition to the skills and capabilities honed through traditional nancial activities, management accountants will have to discover creative ways of viewing a companys current and potential protability, while remaining faithful to the high standards of the profession. At times, examining the benets of a new business model may require a less conservative view of risk management with a clear, objective perspective of the trade-offs involved in following a new course. In looking at changes to corporate business models, management accountants could take the lead by considering a series of questions that could generate vibrant and informative discussions. Raising these questions, even if their answers seem obvious, can initiate an internal conversation that not only spotlights the value delivered by management accountants, but also can help steer a company onto a more successful and protable course. For more insights on how to balance the risks of innovation, see also Managing Innovation harnessing the power of nance. But above all, management accountants need to ensure they are keeping a close eye on business trends and developments with the constant question in their minds, Could this disrupt our business and if so, how? Only then will their organisations be in a better position to avoid the fate of those consigned to history through failure to adapt their business models.

22

BUILDING RESILIENCE An introduction to business models

Questioning the model

Are the outcomes of the current business model being measured appropriately? Is the value of non-traditional assets such as human and intellectual capital accurately reflected in the current model? Do changes in a companys financials suggest shifts in Porters five forces that indicate either threats or opportunities? How do the financial risks of pursuing the new model compare to the risks of following the status quo? Is the perceived magnitude of the risk coloured by an overly conservative approach to business or a reluctance to change? Do legacy accountancy practices appropriately capture potential sources of revenue for models that feature more diverse revenue streams? In evaluating a new business model, should cost allocation methods be revised to reflect a more complex business environment? Should traditional pricing models such as cost-plus be re-examined for modern business settings in which, for example, producers of value and consumers are almost indistinguishable? Is a new way of calculating return on investment needed? Should forecasting models be adjusted to most accurately capture the potential of an innovative business model?

23

Footnotes
1 A  le Novak, Business Model Literature overview, presentation at Accounting Renaissance: Lessons from the Crisis and Looking into the Future, Venice, Italy, Nov. 4, 2012. 2  Ramon Casadesus-Masanell and Joan E. Ricart, How to design a winning business model, Harvard Business Review, January-February 2011. 3  Business Model Background paper for <IR>, International Integrated Reporting Council (IIRC), 2013. 4  Apocalypse H20 case studies on Rio Tinto and Puma, CIMA, 2011. 5  I IRC, 2013. 6 R  ichard Branson, Richard Branson on passing the bad-news buck, Entrepreneur, December 2010, accessed at www.entrepreneur.com. 7  Virgin Media web site, Looking after our people, accessed at www.virginmedia.com/about/cr/people.php. 8  Richard Branson, Richard Branson on giving your employees freedom, Entrepreneur, December 2012, accessed at www.entrepreneur.com. 9 P  rt A Manger web site, Good jobs for good people, accessed at www.pret.co.uk/us/about_our_company/ our_team.htm. 10 J  effrey P. Bezos, letter to shareholders, Amazon.com, April 2013. 11 A  RM web site, company prole, accessed at www.arm.com/about/company-prole/index.php. 12  Manyika et al, quoted in A. Bhimani and M. Bromwich, Management Accounting: retrospect and prospect, CIMA Publishing, 2010 13  Political, economic, social, technology (PEST) analysis is a common tool for performing an assessment of the factors impacting strategic decisions. 14  Manyika et al, quoted in A. Bhimani and M. Bromwich, 2010. 15  All eyes on the sharing economy, The Economist, March 9, 2013. 16  Brad Tuttle, Amazon Prime: Bigger, more powerful, more protable than anyone imagined, Time, Business and Money, March 18, 2013, accessed at business.time.com. 17 H  ugo Sarrazin and Johnson Sikes, Competing in a digital world: Four lessons from the software Industry, McKinsey Quarterly, February 2013. 18  Simply Zesty Blog, Are Red Bull just a media company who happen to sell energy drinks? blog entry by Niall Harbison, Nov. 24, 2011. 19  At March 2013, all 574 planes in Southwest Airlines eet were Boeing 737s, and the carrier was the worlds largest operator of 737s, according to Wikipedia. 20  VW conquers the world, The Economist, July 7, 2012. 21  Vijay V. Vaitheeswaran, Need, Speed and Greed: How the New Rules of Innovation Can Transform Businesses, Propel Nations to Greatness, and Tame the Worlds Most Wicked Problems, HarperCollins Publishers, New York, NY, USA, 2012. 22  Eddie Yoon and Linda Deeken, Why it pays to be a category creator, Harvard Business Review, March 2013. 23  For further information about supporting innovation, see Managing Innovation harnessing the power of nance, CGMA, May 2013. 24  Manyika et al, quoted in A. Bhimani and M. Bromwich, 2010. 25  IASB and FASB are expected to publish new guidance on revenue recognition soon that focuses on the identication of discrete performance obligations as measurement criteria. 26  CGMA, May 2013. 27  Wall Street Journal Small Business Blog, The Venture Capital Secret: 3 Out of 4 Start-Ups Fail, blog entry by Deborah Gage, Sept. 19, 2012. 28  Richard Foster and Sarah Kaplan, Creative Destruction, Chapter 1, Doubleday, New York, NY, USA, 2001. 29  Carpe Diem Blog, Fortune 500 Firms in 1955 vs. 2011; 87% Are Gone, blog entry by Mark Perry, Nov. 23, 2011. 30  Michael Porter, How competitive forces shape strategy, Harvard Business Review, July-August, 1979. 31  Among the analyses of Groupons problems were Harvard Business Review Blog, The Problem with Groupons Business Model, blog entry by Rita McGrath, July 13, 2011, and How to Save Groupon, blog entry by Ra Mohammed, Dec. 10, 2012, and Forbes Markets Blog, Groupons Problem, blog entry by Panos Mourdoukoutas, Aug. 14, 2012.

24

BUILDING RESILIENCE An introduction to business models

32  Michelle Conun, Groupons fall to earth swifter than its fast rise, The Associated Press, Oct. 21, 2011. 33  Jasper Rees, The end of our Kodak moment, The Telegraph, Jan. 19, 2012. 34  Knowledge@Wharton Strategic Management Blog, Whats wrong with this picture? Kodaks 30-year slide into bankruptcy, Feb. 1, 2012. 35  James Hall, Woolworths: The failed struggle to save a retail giant, The Telegraph, Nov. 14, 2012. 36  Jim Prior, Woolworths provides a case study in how not to manage a brand, Marketing, Dec. 2, 2008. 37  The Guardian Media Network Blog, 10 reasons companies fail at business model innovation, blog entry by Saul Kaplan, Feb. 1, 2013. 38  Three steps to sustainable and scalable change/ Part 1: Rethinking a companys business model, Deloitte, 2010. 39  Email quoted, among other places, in TechCrunch Blog, Luxury Car-Sharing Service HiGear Shuts Down Due To Theft, blog entry by Sarah Perez, Jan. 1, 2012. 40  Airbnb.com web site, Airbnb at a glance, accessed June 4, 2013, https://www.airbnb.com/about.

41  Airbnb blog, Our Commitment to Trust & Safety, blog entry by Brian Chesky, Aug. 1, 2011. 42  Economist Intelligence Unit, Business 2010: Embracing the challenge of change, February 2005. 43  I BM Institute for Business Value, The power of cloud, 2012. 44  Raphael Amit and Christoph Zott, Creating Value through Business Model Innovation, MIT Sloan Management Review, Spring 2012. 45  Seizing the White Space blog, Business Model Analogies, blog entry by Mark W. Johnson, 2009. 46  Chris Higson with Tom Albrighton, Apple Computers Financial Performance, London Business School case study, 2008. 47  David B. Yofe and Renee Kim, Apple Inc. in 2010, Harvard Business School case study, March 21, 2011 (revised). 48  Peter Valdes-Dapena, Hyundai wont buy your car back anymore, CNNMoney, March 30, 2011. 49  Clark Gilbert, Matthew Eyring and Richard N. Foster, Two Routes to Resilience, Harvard Business Review, December 2012. 50  Deloitte, 2010.

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